Presentation on theme: "Peter Banthorpe, Head of Actuarial Research, RGA UK Yunus Piperdy, R&D Underwriting Manager, RGA UK The Changing CI Proposition The Changing CI Proposition."— Presentation transcript:
Peter Banthorpe, Head of Actuarial Research, RGA UK Yunus Piperdy, R&D Underwriting Manager, RGA UK The Changing CI Proposition The Changing CI Proposition | 19 June 2012
Table of Contents 2 1.Evolution of CI in the UK 2.Pricing New CI Conditions 3.Developing New CI Conditions 4.Underwriting and Claims considerations
4 Fall in endowment sales Move to repayment mortgages Policy Prices Failing Property Prices Rising 1.5bn in Commission paid on Term and CI CI Sales Volumes in the UK Source: Various market data, blended by RGA analysis First ABI SOBP
2003 / 2004: 50% increases in CI premiums following the withdrawal of a major reinsurer from the Guaranteed rate market at the end of 2002. 5 Fall in endowment sales Move to repayment mortgages Policy Prices Failing Property Prices Rising 1.5bn in Commission paid on Term and CI CI Sales Volumes in the UK First ABI SOBP
Evolution of Critical Illness Conventional CI products have always dominated market place 19851987 1991 19992002200620072008 First ABI SoBP First CI Launches 2012
Current Product Variants 7 We have both ends of the extreme at present..... ComplexitySimplicity Serious Illness PlanTrauma Choices ProsCons Pros Quick to underwrite (86% POS, average 7 mins) Simple Less UW means higher price Less Cover Wide Cover Benefits closer match to need Very complex! Relatively Expensive
Mainstream Critical Illness Product 8 Moving to complexity ComplexitySimplicity Partial Payments More Definitions ABI+
The move to complexity 9 IFA Critical Illness Products – November 2010 Source: Fortis Life Critical Illness Guide, as at 17 November 2010 http://www.fortislife.co.uk/static_site/assets/downloads/lowres/sales-aids/CI_Combined_Sales_Aid.pdf
The move to complexity 10 IFA Critical Illness Products – 18 Months later Source: Ageas Protect Critical Illness Guide, accessed 20 May 2012 http://www.ageasprotect.co.uk/Document/1198_CriticalIllness_ComparisonGuide.pdf Change in:AgeasAvivaBright Grey Friends Life* Legal and General LV=Scottish Provident Zurich Full payment Definitions 01550960 Partial payment Definitions 02220720 ABI + Definitions 475801122 * Friend Life compared to BUPA
Competition on Quality and price ABI Statements of Best Practice; Comparison services e.g. Defaqto, CI Expert; New Entrants; Published Claims Statistics => Visibility of declinature rates Objective definitions; Definitions which do what they seem to say; Non-disclosure; Drivers of Change in CI Product Design 11
History of UK CI Pricing 15 Current Level of Experience 1985 Pricing Based on Population Studies Dash and Grimshaw (1995) Early 21 st Century Mixture of Population and Insured Experience A Critical Review (2000) / Exploring the Critical Path (2006) 2010 Largely Insured Experience Pricing based on: Own data; CMI data;
Pricing Trends 16 Recent past best guide to short-term future Source: Presentation to the 2004 Healthcare Conference by the CI trends Working Party Best Estimate Avg Change % pa, England & Wales, 1980-2000 Men, aged 40 - 60 Size of Balls Indicates Relative Importance of CI Measured by Incidence Rate.
Consultation with Expert CMO panel; Strictly moderated sessions for each of the 16 conditions considered; Production of expert “Expert Opinion Statement” which summarises consensus on: Level and direction of recent Population past trends Rationale for recent past trends Projected trend for next 10 years and subsequent 10 years, with accompanying rationale Potential ‘shocks’ in next 10 years and subsequent 10 years, with accompanying rationale Pricing Trends 17 But longer term rely on research of future medical advances
Pricing New Minor Conditions 18 Rates Obtain population incidence rates Possible sources: Medical Papers, National Databases Errors Understand the data and correct for any known errors Population sources often include either double counting or under reporting Severity Insured Definition probably won’t match medical definition; Adjust for differences. Insured Adjust for differences between Population and insured experience In particular, socio-economic bias and impact of underwriting Overlaps Reduce costs if elements of the definition already covered elsewhere
Popular additional cancer related CI condition Around 10 Insurers cover it as a partial benefit Definitions vary from full mastectomy through to partial mastectomy Has existed in the market for a number of years so pricing approach isn’t that sensitive anymore! Indeed, priced before the highly useful National Mastectomy and Breast Reconstruction Audits published. Pricing the original form of the benefit – Pip will talk through variations later.... Example : Ductal Carcinoma In Situ Requiring Mastectomy 19 Why?
Non-Invasive Breast Tumour ICD10 Code “D05” HES Data; Cancer Registry Data (ONS); Rates by Age of Population Created by dividing by population estimates; Comparison to US estimates; Population Statistics 20 Base Incidence Rates for DCIS
Allow for treatment by Mastectomy Total excision of breast total mastectomy ; OCPS Codes 27.1 to 27.4; Current proportions only Any Moral Hazard? Trending to present day Impact of Underwriting / Select Effect Relevant risk factors underwritten for? Overlaps with existing CI conditions Screening Changes Insured Population Differences arising from different socio- economic mix Further Adjustments 21
How can we decide what impairments to cover? Customer need Sufficient statistics to price Able to underwrite Able to assess claims
Where do the ideas come from? 24 Plugging the gaps Refuted claims Medical advances Exclusions TPD Customers / advisers International markets Competitive differentiation Overlaps at zero cost
Types of new CI conditions ABI + Full payment conditions Partial payment conditions Additional vs accelerated 25
Development process 26 Team effort between all the disciplines Key design principles How much cover
28 Clear and objective definitions what is covered? what are the claim triggers? what is not covered? Match to company philosophy and pricing As close as possible to medical definitions Future-proofed against medical advances Key design principles
How much cover? 29 Diagnosis: expensive, customer friendly Symptoms and / or Treatment: future-proof against changes Advanced Impairment: cheaper, more declined claims
30 Clarity Generic terms Model wordings Model exclusions Prescribed guidelines on use of headings, sub- headings, limitations of cover ABI Statement of Best Practice
31 Example 1 – Breast ductal carcinoma in situ Mastectomy for ductal carcinoma in situ We will pay the lower of £25,000 and 25% of the sum insured if the life insured is treated by total mastectomy for a histologically confirmed ductal carcinoma in situ.
32 Example 1 – Breast ductal carcinoma in situ Alternative definitions Lumpectomy Lobular carcinoma in situ Mastectomy for ductal carcinoma in situ We will pay the lower of £25,000 and 25% of the sum insured if the life insured is treated by total mastectomy for a histologically confirmed ductal carcinoma in situ.
33 Example 2 – Carcinoma in situ of the urinary bladder Carcinoma in situ of the urinary bladder We will pay the lower of £12,500 and 12.5% of the sum insured if the life insured is diagnosed with carcinoma in situ of the urinary bladder. The diagnosis must be histologically confirmed on a pathology report. This benefit is payable only once. Non-invasive papillary carcinoma, stage Ta bladder carcinoma and all other forms of non-invasive carcinoma are specifically excluded.